Storm Hits Stocks

Updated Sept. 15, 2008 7:08 p.m. ET

The stock market suffered its worst daily plunge in nearly seven years Monday as the bankruptcy filing of Lehman Brothers Holdings threw the U.S. financial system into an abyss, uncertain where the bottom of its credit-related problems lies. Until Sunday night, no Wall Street firm of such size and stature had suffered an all-out meltdown.

The Dow Jones Industrial Average, which languished with a loss between 200 and 300 points for most of the day, saw its losses accelerate in the last hour of trading to suffer its worst daily point drop since trading resumed after the 9/11 terror attacks. The Dow ended down by 504.48 points on Monday, off 4.4%, at its daily low of 10917.51, down 18% on the year. All 30 of the Dow's components fell, save for Coca-Cola, which rose 0.5%.

Other stock yardsticks suffered Monday. The Nasdaq Composite Index was off 4.7% to 2179.91, near a 6-month low and down 18% on the year. The small-stock Russell 2000 fell 4.2% to 689.76, down 19% on the year. The S&P 500 was off 4.7% to 1192.96, down 19% on the year.

Bank of America shares dropped 21% after reaching a deal to buy Merrill Lynch on Sunday.

Treasury prices surged. The dollar dropped against the yen but rose against the euro and pound. Crude-oil futures settled down $5.47 at $95.71 on the New York Mercantile Exchange on Monday on fears that the financial crisis could further slow the wider economy and fuel demand. It was oil's first finish below $100 since early March.

AIG Sinks Further Insurer American International Group Inc., succumbing to relentless investor pressure, saw its stock drop 61% in 4 p.m. trading in New York, after a 31% plunge on Friday. In an effort to prop up AIG, the Federal Reserve on Monday asked Goldman Sachs and J.P. Morgan Chase to help make $70 billion to $75 billion in loans available to the company, according to people familiar with the situation. The move came as officials on both the state and federal level scrambled Monday to help AIG find ways to come up with as much as $40 billion to help prevent a downgrade of its credit rating, an outcome that could ultimately prove fatal for the firm. It wasn't immediately clear whether the banks would agree to the government's request.

Fed Questions Federal Reserve officials have for weeks been on a path to leave interest rates unchanged at Tuesday's policy meeting. They seem unlikely to want to veer from that path despite the collapse of Lehman. Still, the extreme uncertainties in the market could change their thinking -- and how they describe their inclinations in their policy statement. Financial markets quickly priced in the possibility of the Fed shifting back into rate-cutting mode.

H-P to Cut Nearly 25,000 Jobs Hewlett-Packard said it will reduce its work force by 7.5% as part of its plans to restructure after buying outsourcing giant EDS for $13.9 billion.

Hirst Auction Pays Off British artist Damien Hirst's bold strategy to bypass his galleries and take his art to auction paid off last night when Sotheby's in London sold 70.5 million pounds ($127 million) of his pickled animals and polka-dotted canvases. The evening sale, which surpassed its 62.3 million-pound high estimate, underscored the resilience of the art market despite woes in the broader financial markets.

China Rate Cut China's central bank cut rates for the first time in more than six years, to 7.2%, as concern over the U.S. reorders global economic priorities.

Industrial Production Drops Production by U.S. industries plunged in August, falling double the rate expected as car-making slumped and weather both mild and stormy struck. Industrial production decreased 1.1%, following a downwardly revised 0.1% climb in August, the Federal Reserve said Monday. Previously, July output was seen rising 0.2%.

Resignation at Metrolink The spokeswoman for rail agency Metrolink resigned after being criticized for public statements about the commuter-train crash killed 25 people in Los Angeles.

More Fees United Airlines is doubling the fee it charges passengers to check a second bag on domestic flights to $50, seven months after it first enacted such a charge.

Napster Deal Best Buy has agreed to buy Napster for $121 million, a deal that the consumer-electronics giant said it will use to reach new customers.

—-- Compiled by Tim Hanrahan from reports by The Wall Street Journal, Dow Jones Newswires and the Associated Press; write to him at tim.hanrahan@wsj.com

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